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Private Sector; Applying Science to the Casino

FOR many Las Vegas casinos, the conventional wisdom is that the key to success is to build huge copies of the world's wonders, then add sequins. But to Gary W. Loveman, it's about figuring out where to put the fishhook.

It's also about using the latest science and business intelligence to do so.

Mr. Loveman is the newly named chief executive of Harrah's Entertainment, the Las Vegas-based company that operates the Harrah's casinos. He has been at the company for four years as president and chief operating officer. But before that he was a business professor at Harvard, and, while not strictly analogous, his presence in the gambling industry represents a culture clash as jarring as hillbillies in Beverly Hills.

Far from espousing the ''if you build it huge, they will come'' axiom of his executive forebears in Las Vegas, Mr. Loveman has a philosophy grounded in M.I.T. training and Harvard case studies. For example, he is fond of noting Wal-Mart's discovery that its stores sell more Band-Aids if they are stocked next to the fishhooks; he is now pushing Harrah's to collect and mine customer data to figure out where to place slot machines and blackjack tables, and what promotions work best to increase betting.

''We've tried to make a science out of understanding very carefully what provocations are meaningful to customers,'' Mr. Loveman, 42, said. ''In a sense it's the equivalent of Wal-Mart putting the right product in action alley.''

The question is whether Mr. Loveman can translate his vocabulary of ''decision logic'' and ''empirical data'' into additional profits. Further, will employees and managers continue to buy into the unconventional approach, and his relatively highbrow demeanor?

''The industry is filled with a lot of rough-and-tumble people,'' said Steven Kent, a gambling-industry analyst at Goldman Sachs. ''The trick is for him to get managers to buy into a system they didn't grow up in.''

That said, Mr. Kent added that Mr. Loveman is willing to ''shake things up and make a decision based on profitability, not history.''

Harrah's has fared well as a result, Mr. Kent noted. Last month, the company, which operates 26 casinos across the country, said its revenue rose to $1.13 billion, in the third quarter, up 11.9 percent from the period a year earlier. The company, despite having less opulent casinos than its Vegas neighbors, has focused successfully on a middle-tier market: mom-and-pop gamblers who bet less money than high rollers but bet more consistently, Mr. Kent said.

Things did not look so good for Harrah's in 1997, when Mr. Loveman was still a Harvard professor. The company, which has 40,000 employees, was being beaten in several markets, Mr. Loveman said, and was spending too much on promotions to attract gamblers in Las Vegas.

Mr. Loveman said he learned all of this when Harrah's asked him to teach its managers new strategies to improve their performance, something he did for several companies while he was teaching at Harvard. Not long afterward, Philip G. Satre, the chief executive of Harrah's, hired him as chief operating officer, then named him company president last year. On Jan. 1, Mr. Loveman will succeed him as chief executive; Mr. Satre, 53, will remain chairman.

In terms of personal income and glitz, it has been the career-change equivalent of trading a Honda Accord for a Ferrari, which is what Mr. Loveman did when he left the ivory tower for sin city. His annual pay rose to $3 million from $120,000, and he can use a corporate jet to shuttle between Las Vegas and Boston, where he lives on weekends with his wife, Kathy, and three children.

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What is consistent is that he is still maniacally competitive. As a youth in Indianapolis, he attended a basketball camp run by Bob Knight, then the coach at Indiana University, but when he was the only member of his squad not to make the camp's all-star team, he quit the sport. He turned his attention to tennis and said he became one of the top 25 players in Indiana.

He received a bachelor's degree from Wesleyan University in Connecticut, where he fed his love of music by working at the college radio station and organizing concerts. After a stint as an economic researcher at the Federal Reserve Bank, he went to M.I.T. to study economics, completing a Ph.D. dissertation on causes of the protracted unemployment in Europe in the 1980's. Upon graduation, he accepted a business professorship at Harvard.

''When he told me he took a job at Harrah's, I said, 'You're kidding,' '' said Bruce Miller, a lawyer in Boston and a longtime friend of Mr. Loveman's. ''We all have a preconceived notion about what those guys in Vegas are all about; we've all seen 'Casino.' ''

Mr. Loveman said he didn't gamble until he was 32. But he said the casino business suits his personality. ''It's a competitive tonic,'' he said of Las Vegas. ''I get a report card every day.''

When Harrah's hired Mr. Loveman, the company had sown the seeds of science; it was collecting data on customers through ''Total Reward'' cards that they slip into a slot machine or give to a dealer. The cards record playing habits and correlate them with the gambler's age, sex and name. Mr. Loveman was responsible for interpreting the data from casinos and using it to attract gamblers, said Mr. Kent, the Goldman Sachs analyst.

Mr. Loveman found that the company could reduce its costs and achieve the same results by tailoring promotions to individual gamblers. Some customers would show up if they just got an offer for a free room, whereas others needed the inducement of show tickets. He said his approach is a combination of the ''decision-science based marketing'' used by credit card companies and epidemiological research, using controlled tests, with placebos, to give only what is necessary to change a gambler's behavior.

SOME Harrah's managers who were steeped in the culture of Las Vegas resisted the approach. Mr. Loveman responded by ridding the company of resisters -- and bringing in his own people. He recently hired a Rhodes scholar to be the assistant manager of a casino in Lake Charles, La. One of the first executives he brought in was Rich Mirman, a former Booz Allen Hamilton consultant whom Mr. Loveman met while at Harvard. Mr. Mirman runs marketing at Harrah's.

More change is on the way. Mr. Loveman said he planned to use his customer data to focus promotions even more narrowly. One person might get a coupon to use a particular slot machine at a given time, for example.

Ultimately, he added, he wants his industry to emulate the sophisticated retail operations, like Wal-Mart, that use customer data in innovative ways to improve their businesses. ''I would be humbled to be in the same sentence as those guys,'' he said of Wal-Mart.